G.E. Perks Raise Issues About Taxes

In the wake of documents that detail the long list of living expenses General Electric paid for John F. Welch Jr., its former chief, some corporate governance experts are asking why G.E. did not more fully disclose the information and who should pay the taxes on all these benefits.

The benefits were detailed in divorce papers that Mr. Welch's estranged wife, Jane Beasley Welch, filed in Superior Court in Bridgeport, Conn., on Thursday. They include a list of corporate perks including lifetime use of a palatial Manhattan apartment complete with wine, flowers, cook, housekeeper and other amenities, as well as access to General Electric's Boeing 737 jets, helicopters and a car and driver for Mr. Welch and his wife. Also included were tickets for the couple at a number of top sporting events and the opera.

What has bothered some experts is how little G.E. has said about the breadth of the benefits.

''I don't think the amount of disclosure really explained to the investment community the magnitude of what was being given to the retired C.E.O.,'' said Jay W. Lorsch, a professor at the Harvard Business School and an expert in corporate governance.

''The other question here is how many of these retirement expenses, such as the apartment in New York, are legitimate expenses that G.E. should even be willing to pay,'' Professor Lorsch said. ''Jack Welch got paid for doing a great job. Why should he get paid twice?''

Nell Minow, editor of The Corporate Library, a corporate watchdog group, believes investors might have been more alert to how indulgent the corporate culture was at G.E. if they had looked more carefully at the company's compensation committee, which, she feels, did not have the independence it needed to say no to Mr. Welch.

Public filings state that two members of the committee, Sam Nunn and Roger Penske, ''had business dealings with G.E.,'' Ms. Minow noted. ''And another member, Andrew Sigler, when he was chief executive of Champion International, was widely criticized by shareholders for not relating his pay to the company's performance.''

In a statement on Friday, the compensation committee said that a publicly filed 1996 employment agreement to keep Mr. Welch until 2000 agreed to give him lifetime access to ''planes, cars, offices, apartments and financial planning services.'' And the committee said that G.E. had received great value from the arrangement.

In a statement also on Friday, Mr. Welch said the plan had ''worked to the benefit of all constituencies.''

But Graef Crystal, a compensation expert, asked whether the committee should be revisiting existing arrangements from time to time to see if they make sense in light of the current business environment. ''Even if they made sense in 1996, the question is whether they do now.''

According to G.E.'s 2001 proxy statement, Mr. Welch put few benefits to personal use. He had only $171,772 in compensation beyond his salary and bonus. The single item that is detailed is $143,479 for financial counseling. That leaves only $28,293 to cover all other spending for personal reasons.

Securities and Exchange Commission rulings require that companies report any personal benefits if they are over $50,000 in total or over 10 percent of any top executive's salary and bonus, whichever figure is lower. In Mr. Welch's case, his 2001 salary and bonus were $16.2 million, so he had to declare any benefits over $50,000.

Thus General Electric is taking the position that any use of the corporate apartment and other perks beyond the $171,772 he spent during the eight months before he retired from General Electric in September 2001, was for corporate purposes. While Mr. Welch must pay taxes on that amount, General Electric can write off that money, if it can show that they are ordinary and necessary expenses of doing business.

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Mr. Crystal, the compensation expert, said he found it hard to believe that all those benefits were purely for corporate use. Mr. Welch has four homes -- in Connecticut, Massachusetts, New York and Florida. ''How did he get to those far-flung places?'' Mr. Crystal wondered. ''By Amtrak?''

Mr. Sheffer said that people do not understand how G.E. operated. ''Mr. Welch, for example, was required to use G.E. transportation at all times for security reasons,'' he said.

Mr. Crystal said there was no reason for that protection. ''If he needs it, why not take a prop plane?'' he said. ''And now that he is retired, who is going to go after him anyway?''

The planes are also financially advantageous to Mr. Welch.

Mr. Sheffer said that under federal tax rules, personal trips by Mr. Welch using corporate transportation are not required to be disclosed to shareholders. For income tax purposes, when he uses the corporate jet for personal reasons he must pay income taxes not on the cost of the flight, but on the rough equivalent of coach fare, Mr. Sheffer said.

He said that the rules for proxy disclosure and the rules for what Mr. Welch must report as income were not identical, so all of the income Mr. Welch received in the form of personal services might not be reported in the proxy but would be on his W-2 wage statement.

Tax lawyers interviewed yesterday said that many of the items that Mrs. Welch says the company paid for are clearly personal in nature and are compensation to Mr. Welch on which he should pay taxes.

When Mr. Welch files his divorce papers, they are likely to show his income last year. And they will likely include documentation on how much of the benefits he received from G.E. were for his personal use, and therefore how much he must be taxed.

Even if he takes the position that his personal use of those benefits was minimal, some experts yesterday wondered just whether such a rich deal would stand up in court.

Nevertheless, tax defense lawyers yesterday said there was almost no prospect of a criminal tax charge against G.E. or Mr. Welch unless evidence appeared that there had been a deliberate attempt to conceal the spending from I.R.S. auditors.

However, these same tax lawyers said that an audit would likely result in the company or the Welches owing taxes and interest, and that if the couple were held to be responsible, they could owe substantial penalties for under-reporting their income and filing inaccurate tax returns.

Kathryn Keneally, a tax defense lawyer in New York, said that even if G.E. improperly reported the payments to Mr. Welch, ''there are a thousand ways they can handle this'' that would allow G.E. to escape penalties, but not taxes and interest.